Google Admits Mobile Ads Are Causing 'Deceleration' In Revenue Growth

Business Insider

Google has finally admitted in a disclosure to the SEC that mobile ad revenue is replacing its desktop ad revenue in a way that may hurt its sales.

In a 10-Q filing, the company said (as it always does) that "our revenue growth rate has generally declined over time, and it could do so in the future as a result of a number of factors."

But Google added new language to describe those factors, including, "Mobile search queries and mobile commerce" which have "resulted in changes in our product mix, including a significant increase in mobile search queries and a deceleration in the growth of desktop queries. We expect that our revenue growth rate will continue to be affected by evolving consumer preferences.'

On its Q3 2012 earnings call, CEO Larry Page said Google now had an $8 billion annual run-rate from mobile ads. We noted that this implied a 2% contraction in its desktop business, as click prices on mobile are cheaper than those on desktop. It's a supply and demand problem: Greater search demand on mobile devices increases the available inventory supply for advertisers, and greater supply always lowers prices -- which could hurt Google's ability to grow revenues on the topline.

Google previously admitted that mobile ads were changing its revenue mix, but only this quarter did it add the dread word "deceleration" in reference to its desktop search business. Here's the company's full disclosure:

Advertising transactions continue to shift from offline to online as the digital economy evolves. This has contributed to the rapid growth of our business since inception, resulting in substantially increased revenues, and we expect that our business will continue to grow. However, our revenue growth rate has generally declined over time, and it could do so in the future as a result of a number of factors, including increasing competition, our investments in new business strategies, products, services, and technologies, changes in our product mix, query growth rates and how users make queries, challenges in maintaining our growth rate as our revenues increase to higher levels, and the evolution of the online advertising market, including the increasing variety of online platforms for advertising, and other markets in which we participate. Mobile search queries and mobile commerce are growing dramatically around the world, and consumers are using multiple devices to access information. Over time these trends have resulted in changes in our product mix, including a significant increase in mobile search queries and a deceleration in the growth of desktop queries. We expect that our revenue growth rate will continue to be affected by evolving consumer preferences, as well as by advertising trends, the acceptance by mobile users of our products and services, and our ability to create a seamless experience for both users and advertisers in a multi-screen environment. In addition, if there is a further general economic downturn, this may result in fewer commercial queries by our users and may cause advertisers to reduce the amount they spend on online advertising, including the amount they are willing to pay for each click or impression, which could negatively affect the growth rate of our revenues. We plan to continue to invest aggressively in our core areas of strategic focus.

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